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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • Paying For Empty Piggy Banks 25 comments
    Dec 16, 2013 1:30 PM | about stocks: GPT, TMF, GNI, WHX

    2013 has been a year defined in part by a mania for positive carry at any cost. We tried to exploit this mania in a number of ways - buying up assets that had no yield going into 2013 but a yield by 2014 (such as GPT common and preferred shares) and shorting expensive yield (such as TMF). Another way is via securities that are essentially only yield, that pay out distributions but have no underlying principal. These can be especially interesting because they show up on screens for high yield and are often purchased by investors who are unfamiliar with the specifics of their terms.

    One such investment idea was Whiting USA Trust I (NYSE:WHX). It is the equivalent of owning a dividend without owning an underlying company. In this case, holders were willing to pay more than the expected value. Here is what has happened since then:

    (click to enlarge)

    WHX will probably pay out about $3 and then will expire worthless in 2015. At today's market price of around $5, holders are paying a cost net of distributions of around $2 for an empty, broken piggy bank. It is entirely a creature of stock screens, since it screens well for yield. As WHX reverts to making sense, are there other such opportunities before the positive carry mania comes back to Earth? Yes. Great Northern Iron Ore (NYSE:GNI) may also be worth looking at.

    GNI currently costs about $75 but that is far from its value. The trust will expire worthless when the clock strikes midnight on April 5, 2015 after quarterly payouts that will total around $20. Here is what that investment idea has done so far:

    (click to enlarge)

    Both WHX and GNI are expensive, but GNI appears to have further left to fall before they expire. Want the equivalent of yield but also want to be on the right side of value? Then you may consider the following: writing WHX Jan $5 calls for $0.10 and their March $5 calls for 0.20. GNI is more difficult to short than it has been at various times in the past. However, if you manage a trust account for an ex-wife or otherwise have some reason to want to lose a significant amount of money, buy GNI. Once the distributions are done, you will have paid a substantial amount of money for another empty piggy bank.

    Stocks: GPT, TMF, GNI, WHX
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Comments (25)
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  • toddro
    , contributor
    Comments (224) | Send Message
     
    I get a lot these trusts on one of my "value screens" and I've tinkered with ways to to grab the yield but not the negative value. I'm glad to see the "play" done by someone else to see that I am on the correct path. Thanks.
    16 Dec 2013, 02:00 PM Reply Like
  • earljr1
    , contributor
    Comments (516) | Send Message
     
    Chris, USU might be worth a look. They released a Chapter 11 proposal today. Old debt holders will exchange their $530M of debt for 79% of the USU equity and $200M of new debt. The old bonds are apparently trading at 30% of face. So for $159M ($530M *30%) you could buy $200M plus the equity. All of which my be worth nothing in the long term of course. But it is saying the equity in this plan has negative value today. So it seems to me that if you short the the stock and long the old debt (which comes with equity to cover your short), you can't lose. Just thinking. Maybe I'm missing something. I've never done anything like this.
    16 Dec 2013, 09:11 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » Very interesting idea; thanks. I'll follow up on it.
    16 Dec 2013, 09:18 PM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (1217) | Send Message
     
    At Fidelity, they estimate you earn 76% annualized by lending WHX shares to short sellers. I wonder if there are hedge funds that play a game of "chicken" and try to pick up this additional 76% by going long WHX and lending out their shares. That could explain why the shares stay high.

     

    For GNI, the estimated rate is 22%

     

    Of course, most retail investors do not have access to the stock loan market and earn zero. If the SEC had any cajones, they would add transparency to the stock loan market and open it up to retail, but like the IPO market it is too profitable for Wall Street, and it is unlikely this will ever happen.
    16 Dec 2013, 10:25 PM Reply Like
  • Leftope
    , contributor
    Comments (7) | Send Message
     
    To capture the downside, it sounds like the best idea would be to buy Whiting shares, loan them them out, and then sell the longer term 2.50 calls against the stock to protect yourself.
    21 Feb 2014, 04:03 PM Reply Like
  • toddro
    , contributor
    Comments (224) | Send Message
     
    WHX finally crumbled on Friday!

     

    Wow: http://prn.to/1dExvSx
    29 Mar 2014, 03:11 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » WHX at a new 52-week low
    31 Mar 2014, 10:47 AM Reply Like
  • earljr1
    , contributor
    Comments (516) | Send Message
     
    Were you able to short it? I couldn't get any at Ameritrade.
    31 Mar 2014, 01:24 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » I wrote calls and got short temporarily but repeatedly.
    31 Mar 2014, 02:13 PM Reply Like
  • bazooooka
    , contributor
    Comments (3663) | Send Message
     
    Yup, crazy how this thing ran up to $6 a few times after you profiled yet GNI crashed within weeks. Heck, it may still run above $3 again this Summer and that too will make a great call writing situation.
    31 Mar 2014, 07:56 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » (WHX) at a new 52-week low
    1 Apr 2014, 01:23 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » (GNI) at a new 52-week low
    7 Apr 2014, 01:41 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » (WHX) hit a new 52-week low.
    22 May 2014, 09:14 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » (WHX) hit another new 52-week low.
    28 May 2014, 10:29 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » For another empty piggy bank, you might be interested in (NYSE:BPT). It is expensive, risky, and requires only time as a catalyst.
    25 Jul 2014, 10:30 AM Reply Like
  • bazooooka
    , contributor
    Comments (3663) | Send Message
     
    Chris, where do you back of the napkin the total distribution left in this one. I usually like stocks where there is a lot of emotional attachment since longs will ride this one over the next 13 years and it will allow for shorts (like myself) to enter at higher prices and patiently wait for the market to adjust as termination approaches.

     

    http://bit.ly/1phkiRQ
    25 Jul 2014, 06:44 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » (NYSE:BPT) will get you mid-$40s distribution worth mid-$30s DCF at a cost of over $90. It is (NYSE:GNI)- and (NYSE:WHX)-like in its asininity.
    26 Jul 2014, 03:07 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1357) | Send Message
     
    Such a longtime left with $BPT. But thanks for sharing it.

     

    Meanwhile $WHX is again on the move.....back over 2.50....Dividend on the horizon.
    26 Jul 2014, 03:46 PM Reply Like
  • Joshua Heller
    , contributor
    Comments (482) | Send Message
     
    I suspect (NYSE:BPT) will hold up until 2018, when chargeable costs start increasing dramatically. All else being equal, the dividend would decrease by almost 10% (chargeable cost goes up $3 while per barrel royalty has averaged around $35-$40 the past few years).

     

    The value of BPT is significantly lower than today, barring a dramatic increase in oil prices that would compensate for rising costs/charges.
    26 Jul 2014, 04:11 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » (WHX) hit another new 52-week low...
    19 Dec 2014, 07:25 PM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1357) | Send Message
     
    (WHX) should hit another 50 or so new lows in the next several months......I've been short the 3 call but with this stock until it is delisted you never know.
    19 Dec 2014, 07:38 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » WHX hit a new 52-week low
    21 Jan 2015, 10:58 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10270) | Send Message
     
    Author’s reply » GNI hit a new 52-week low.
    2 Mar 2015, 03:33 PM Reply Like
  • Joshua Heller
    , contributor
    Comments (482) | Send Message
     
    If anyone had any doubts about the efficiency of markets, only look at this article and a few on WHX, GNI, and BPT (especially the most recent on BPT) along with the comments.

     

    It amazes me that anyone with any basic excel knowledge could model most of these trust in 5-10 minutes and conclude how overvalued they are. Instead, many investors spend more time blaming short sellers and complain about supposed bear raids while holding their shares long.
    2 Mar 2015, 03:58 PM Reply Like
  • bazooooka
    , contributor
    Comments (3663) | Send Message
     
    This is a fun thread to come back to. Heck, the BPT play now looks like it only has $20-$40 in total distributions left and should close by early next decade or sooner. Factoring time value of money and risk this stock should be half of current pps.

     

    http://bit.ly/1BQFurc
    3 Mar 2015, 01:41 AM Reply Like
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